Southland Royalty Company LLC – Court Approves 60-Day (Third) Extension of Exclusive Plan Filing Period until February 19, 2021 to Allow Time to Sell Williams Assets

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December 17, 2020 – The Court hearing the Southland Royalty Company case has extended the periods during which the Debtor has an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including February 19, 2021 and April 26, 2021, respectively [Docket No. 1214]. Absent this relief, the Plan filing and solicitation periods were scheduled to expire on December 21, 2020 and February 24, 2021, respectively.

With a decision now entered in the Debtor's litigation of disputes with Wamsutter LLC (Williams), the Debtor said it can begin to move forward with evaluating its options for completing its Chapter 11 case.

According to the extension motion [Docket No. 1175] "On March 27, 2020, the Debtor filed a complaint against Williams, thereby commencing an adversary proceeding (the 'Wamsutter Litigation'). Through the Wamsutter Litigation, the Debtor sought a determination of whether, inter alia, certain minimum volume commitments ('MVCs') in certain oil and gas transportation agreements were covenants that run with the land on which the Wamsutter Assets are situated. Importantly, it also sought rulings on whether it could compel Williams to provide services under the more favorable of its two contracts, thereby providing the Debtor with a viable path to market even if it rejected the contract with the extraordinary MVCs. Recognizing that a resolution of the Wamsutter Litigation would inform the Debtor, and all potentially interested parties, regarding the value of the Wamsutter Assets, whether such assets can be sold free and clear of certain onerous MVCs and whether the Debtor could rely on its more favorable agreement with Williams to service all of the Wamsutter Assets, and after receiving few expressions of interest as a result of the potential burdens affecting the Wamsutter Assets, the Debtor delayed its sale of the Wamsutter Assets pending the outcome of the Wamsutter Litigation

Starting on September 21, 2020, the Court held a trial in the Wamsutter Litigation…On November 13, 2020, the Court entered a ruling on the Wamsutter Litigation finding, among other things, that the Debtor’s L63 gas gathering agreement is not and does not contain a real covenant that runs with the land and that, consequently, the Wamsutter Assets may be sold free and clear of Williams’ interests pursuant to section 363(f)(1) and (5) of the Bankruptcy Code (the 'Wamsutter Ruling') [Adv. P. 20-50551 D.I. 262]. It further found that the Debtor could not compel Williams to service the Wamsutter field under the more favorable of the Debtor’s agreements with Williams. With the benefit of the Wamsutter Ruling, the Debtor is negotiating a path forward with the parties regarding the disposition of the Wamsutter Assets and, ultimately, a plan."

The extension motion further states, “During its exclusive period, including previous extensions, the Debtor has made substantial progress on its chapter 11 case and will continue to do so going forward. In addition to consummating the sale of its exploration and production (“E&P”) assets in the San Juan Basin in New Mexico, the Debtor litigated to decision its disputes with Wamsutter LLC (“Williams”) regarding the legal attributes of the Debtor’s most material midstream contracts. Clarity regarding he options for treatment of Williams’ contracts, one of which contains charges that dwarf most other claims in this case, was and is essential to all parties to negotiate a path forward. Accordingly, prior to the Court’s November 13, 2020 decision, the Debtor was unable to sell the Debtor’s E&P assets in the Wamsutter Basin in Wyoming (the “Wamsutter Assets”) and did not have certain predicate facts necessary for successful plan negotiations. Now that the Court has issued its decision, each of the parties can evaluate its options and productive negotiation is possible. The Debtor has been in discussions with all major creditor constituents to build creditor support for a path forward.

By this Motion, the Debtor seeks additional time to negotiate a plan with its key creditor constituents, conduct a marketing and sale process for its Wamsutter Assets and proceed to confirmation of a plan that will bring an orderly conclusion to this chapter 11 case."

About the Debtor

The Debtor is a privately-held independent upstream energy company focused on the acquisition, development and exploitation of oil, natural gas and natural gas liquid (‘NGL’) reserves in North America. Headquartered in Fort Worth, it conducts its business across four states, with the majority of operations in Wyoming and New Mexico. The Debtor owns a unique land position comprised of leasehold and mineral interests in approximately 745,000 net working interest acres across both the Wamsutter field (‘Wamsutter’) of the Greater Green River Basin in southwestern Wyoming and the San Juan Basin (‘San Juan’) in southwestern Colorado and northwestern New Mexico, including approximately 150,000 net working interest mineral acres in the Wamsutter field.

The Debtor has no employees and outsources all functions of asset management, pursuant to that certain Management Services Agreement, dated as of February 9, 2015, by and between Southland and MorningStar (as amended from time to time, the “MSA”).

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